SEC, U.S. Attorney Charge Utah Man With Running Fake Investment Club
Investment clubs are a way for individuals to meet and pool their resources to purchase stock, bonds, mutual funds or other securities. Many investment clubs operate as partnerships or limited liability companies, where individuals purchase memberships and participate in joint decision-making. Unlike larger investment groups, an investment club with fewer than 100 members generally does not have to register with the U.S. Securities and Exchange Commission, although some state regulators may require it.
The Investment Club That Apparently Was Not
Unfortunately, investment clubs may also provide a vehicle for stock fraud. An ongoing SEC civil case—which has now prompted a separate criminal proceeding—offers a cautionary tale. The defendant is accused of running a fake investment club for the purpose of covering up his own losses while engaged in high-risk day trading.
According to a civil complaint filed by the SEC earlier this year, Roger S. Bliss sold memberships in a purported investment club which day traded Apple, Inc., stock. The SEC said Bliss told investors he had “an excellent trading record” and that he had not lost money day trading in six years. He allegedly promised investor returns upwards of 300% annually. He also said investors were not at risk because he would personally indemnify any losses.
But according to the SEC, Bliss never made money day trading. To the contrary, the SEC said Bliss’ own brokerage records illustrated losses of over $3.2 million since 2012. Furthermore, Bliss allegedly continued to solicit new investors after he stopped day trading last December. The SEC said Bliss has received at least $950,000 which he did not invest as promised.
There also appears to be no “investment club,” at least in any legal sense. The SEC could not identify any active limited liability companies or partnerships under Bliss’ control. Investors apparently transferred funds directly to Bliss’ personal accounts, where they remained, according to the SEC. The SEC also said Bliss created false documents and websites to maintain the illusion he was running a bona fide investment club.
More Trouble for Hiding Assets
In February, U.S. District Judge Robert J. Shelby of Utah granted the SEC’s request for a preliminary injunction and asset freeze against Bliss. Such measures are common in securities fraud cases to preserve assets in the event they are needed to compensate investors. The judge directed Bliss to disclose and transfer all of his assets to a court-appointed receiver.
However, in July the SEC said Bliss failed to disclose several assets, including a catamaran sailboat. Bliss claimed the boat belonged to his brother-in-law and that Bliss was merely storing it on his land. But the SEC presented evidence the boat did belong to Bliss and that it was moved five days after Judge Shelby issued the asset-freeze order. Bliss did not present any evidence or testimony to the contrary, instead invoking his constitutional right against self-incrimination.
Accordingly, Judge Shelby held Bliss in contempt of court and referred the matter to the United States Attorney’s office, which in turn obtained a criminal indictment against Bliss and his brother-in-law on August 14. The SEC’s civil case against Bliss remains pending before Judge Shelby.
Have You Been the Victim of Fraud?
As always, a defendant is innocent in a criminal or civil case until a court lawfully determines otherwise. But the case above still provides a useful illustration of why investors should always perform their due diligence before trusting their money to individuals who offer seemingly no-risk, high-return investments. Such promises are often signs of fraud. If you have fallen for such a scheme and need advice from a qualified Florida securities fraud attorney, contact Gregory Tendrich, PA, in Boca Raton today.